Household saving is defined as the difference between a household’s disposable income (wages, income of the self-employed and net property income) and its consumption (expenditures on goods and services.)

Auto Makers See Sales Slump in Brazil Lessening in 2017 -- Update

Advertisement

November 08, 2016

By Rogerio Jelmayer and Paulo Trevisani

SÃO PAULO -- Brazil's car makers on Tuesday expressed cautious hopes that a historic slump has bottomed out, announcing multiyear investment plans in new models to drive up sales as Latin America's largest economy struggles to exit from its deepest downturn since the Great Depression.

Germany's Volkswagen AG said it would spend 7 billion Brazilian reais($2.19 billion) to develop new models through 2020, in the opening of São Paulo's annual auto show. Its main local competitors, the U.S.-based Ford Motor Co. and General Motors Co. and London-based Fiat Chrysler, confirmed similar plans they had announced previously.

All of them said the economy is bound to pick up during 2017, though not by much, and that declining borrowing costs should breathe some life into depressed car sales.

"In 2017 we will see car sales stop worsening, but only because they can't get much worse," VW's South America President David Powels said to reporters. "The auto market's recovery will be slow and gradual."

Brazil's auto industry sold 1.67 million cars, light vehicles, trucks and buses this year through October, a 22% drop from the same period in 2015, according to the national auto makers association known as Anfavea.

General Motors do Brasil's President Carlos Zarlenga projected that total vehicle sales in Brazil will reach 2.4 million in 2017, up from this year's estimated 2.1 million, but still down significantly from the all-time high of 3.8 million units sold in 2012.

Brazil is now the world's seventh-largest car maker in sales, down from the fourth-largest in 2014, according to Anfavea.

A combination of recession, unemployment and high borrowing costs is behind the drop in car sales. Brazil's economy contracted 3.8% last year and is forecast by economists to shrink around 3.2% this year, while unemployment is at 11%, up from 4.8% in 2014. The average interest rate in an auto loan is 26%, according to the central bank, which began cutting its benchmark rate last month, to 14% from 14.25%.

In addition, Brazil isn't a major platform for exports, with the nation's auto makers catering mainly to the domestic market.

Economists polled by the central bank last week forecast the nation's GDP will grow a mere 1.2% in 2017.

The government is pushing for legislation that would cap public spending as a way to plug a widening budget deficit, on hopes this could improve business confidence and jump-start the economy. Other measures, including an overhaul in social security and labor laws, are also in the pipeline.

Ford's South America President Lyle Watters said the reforms, if approved, could help car sales.

"I expect certain reforms taking place in Brazil in 2017 to pave the way for growth in the future," he said.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and Paulo Trevisani at paulo.trevisani@wsj.com